Morocco says aims to cut subsidies - if commodity prices allow

Morocco will cut subsidy spending by 20 percent to 42 billion dirhams ($5 billion) or less in 2013 - depending on international commodities prices, the general affairs minister said on Friday.

Morocco will cut subsidy spending by 20 percent to 42 billion dirhams ($5 billion) or less in 2013 - depending on international commodities prices, the general affairs minister said on Friday, as an IMF delegation audits the country's finances.

The Islamist-led government has been under pressure from the International Monetary Fund to start reforming its subsidy system in 2013, but Rabat has delayed the issue because of its political sensitivity.

Last August, the IMF approved a $6.2 billion precautionary line of credit for Morocco over two years while urging action to reform the country's subsidy and pension system.

An IMF delegation is visiting the North African kingdom during the first two weeks of June to scrutinize its finances and see if it is still meeting the criteria of the precautionary credit line.

"We have agreed to ease the subsidy spending and will be at the limit of amount fixed by the national budget as it forecasts 40 or 42 billion dirhams" General Affairs and Governance Minister Mohamed Najib Boulif said in a statement carried by the state news agency.

The amount of the 2013 subsidies will also depend on commodities prices on the international markets and fluctuations in local demand, the statement added.

"If the prices on the international markets are steady, the government will spend less than what it plans" Najib Akesbi an economist at the Hassan II institute of Agronomy Science in Rabat said.

"The government is not reforming, it is betting" he added.

The board of the subsidy fund said subsidies burned up 53.36 billion dirhams in 2012 or 6.4 pct of Morocco's GDP, including 32.4 billion for oil, 15.8 billion for gas and 5 billion dirhams for sugar.

The political establishment around King Mohammed is anxious to avoid a drop in living standards and prevent a return to street protests for political and economic reforms that he managed to stifle in 2011 with social spending, harsh policing and constitutional reforms that paved the way for the ruling party to come to power in a coalition.

Morocco's junior government party is threatening to quit the coalition unless Islamist prime minister Abdelilah Benkirane moderates plans for sweeping cuts to subsidies on food and energy. Benkirane insists the reforms will go ahead.